The cooperative identity at U.S. credit unions

Abstract

With over 5,000 credit unions and 127 million members, U.S. credit unions are the largest network of financial cooperatives in the world. To what extent do U.S. credit unions follow cooperative principles, reflect the cooperative identity, and distinguish themselves from other financial institutions? As credit unions grow and diversify their membership, many argue that credit unions will lose their cooperative identity and become more akin to their counterparts in the for-profit banking sector. This paper presents evidence that U.S. credit unions continue to differentiate themselves from other forms of banks. In their governance structure, credit unions rely on volunteer directors and CEOs are significantly less incentivized by performance-based compensation relative to commercial bank CEOs. Moreover, 51 % of credit union CEOs are female versus only 3% of CEOs at similarly sized community banks. Credit unions also offer better interest rates, provide higher quality loans, avoid overly risky lending practices (e.g., subprime mortgages), and are more likely to open and retain branches in low-income and diverse areas.